Case Study: Canva

Introduction

Canva is a classic case of disruptive innovation. Clayton Christensen is recognised as the pioneer of the disruptive innovation concept and he defined it as the process whereby a smaller company with fewer resources is able to successfully challenge successful incumbent businesses (companies already established in a particular industry). The process involves the new entrants successfully targeting overlooked segments, gaining a foothold by delivering ‘good enough’ products at a lower price. As the entrants improve the quality of the products, they begin to move upmarket, mainstream consumers adopt the products/services and disruption is achieved. This is only possible because the incumbent businesses are too focused on their current customers which are more profitable than consumers in the lower end of their industry or consumers that do not buy those product categories at all.

This leads to two important concepts: low-end footholds and new-market footholds. Low-end footholds refer to customers that are perceived as being the least profitable due to their personal income levels and expenditure. New-market foothold refers to when a new entrant aims to convert non-consumers into consumers of a product/service. That is what Canva accomplished: I, and many others, had never used any graphic design tools before but started using Canva because of its simplicity, extensive library, and affordability.

What does Canva do?

Graphic design is such an important skill to possess but few people have the patience or time to develop that skill. That is where Cnva comes in. Canva is an Australian online graphic design startup founded by Melanie Perkins, Cliff Obrecht and Cameron Adams in 2012. Speaking to CNBC International, Melanie Perkins stated "I guess our goal was to take the entire design ecosystem, integrate it into one page, and make it accessible to the whole world".

What is the value proposition?

Canva equips users with an extensive library of design templates ranging from resumes to business proposals to presentations to business cards and so much more. This means that social media influencers, aspiring entrepreneurs, employees, students and teachers do not have to hire 'experienced designers' until they are ready to. Canva has drastically reduced the cost to design. Even designers do not have to spend a lot of money on expensive design tools.

How do they generate money?

Canva uses a freemium revenue model. The free version is extremely valuable and plays a vital role in converting free users to the pro version. The free version boasts over 250,000 [yes 250,000] customizable templates, 100+ design types, 5GB of storage, and over 1 million free stock photos. Importantly, canva also strategically gives free users the ability to buy single elements for as little as $1 each. Canva for teams starts from ZAR1,499 per year (team of 5 people). Canva pro is ZAR899 per year.

What does it cost?

Canva's largest cost centre is human capital. In fact, in its funding round in November the following was stated 'The fresh round of funding will be used to accelerate this continued growth, including expanding Canva’s team of more than 2,000 employees.' Canva also needs to license its stock images from sites such as Shuttershock. Software maintenance is also a significant cost centre. Nonetheless, Canva is reportedly doing very well financially: it is profitable and was expected to achieve $1 billion in annualised revenue in 2021.

Customer Segments and Relationships?

Canva segments its consumers broadly into individuals, businesses, non-profits, and education (teachers, primary & high-school students). Currently, approximately 5 million people use Canva Pro. In total Canva boasts more than 75 million active users.

Furthermore, there are more than 250,000 non-profits using Canva for Non-Profits. To add value to its non-profit userbase, Canva launched a new onboarding course to help nonprofits familiarize themselves with Canva. Furthermore, Canva hosts webinars to help upskill nonprofit teams, pertaining to storytelling, and leveraging social media to increase impact.

Pertaining to customer acquisition, Canva relies on word-of-mouth, social media advertising, Search Engine Optimization, and shareable links. Canva also has a creator program designers can enrol in. Finally, Canva provides tutorial videos to help users improve their design skills.

Food for Thought

Canva is an exceptional startup, usually when startups scale they lose a bit of their entrepreneurial appetite. This does not seem to be the case for Canva; it is constantly asking for consumer feedback, adding new features that are in demand, increasing its social impact, and targeting new market segments. Overall, I believe Canva's business model is healthy and admire Melanie Perkins' leadership capabilities. However, there is always room for improvement and entrepreneurial growth. For instance, Canva could explore partnerships with NFT companies, cater to consumers with certain disabilities or even target universities (at the moment they only cater to primary & secondary schools).

Case study question: How do you think Canva can re-disrupt the graphic design industry based on the disruptive innovation theory?